Goldman Sachs Group Inc. (GS) plans to start a private real estate investment trust with as much as 50 billion yen ($628 million) that will invest in Japan’s property market, two people familiar with the situation said.
The asset management arm of Goldman Sachs in Japan will begin the REIT as early as July and plans to expand the fund to 100 billion yen in two years, said the people, who asked not to be identified because the information is private. The REIT will invest in office buildings and some residential and retail properties mainly in the Tokyo metropolitan area, they said.
Goldman Sachs’s entry into Japan’s real estate market follows efforts by Mitsubishi Estate Co., Mitsui Fudosan Co. and Nomura Real Estate Holdings Inc. to expand private REITs as they seek to offer new types of assets for investors in the world’s second-largest pension fund pool. The move comes at a time when Japan’s market is set for a turnaround.
“Japanese property values are really near the bottom now,” said Kayoko Hirao, associate director of consulting and research at DTZ Research in Tokyo. “The market may turn around soon. Now is the time to invest.”
Hiroko Matsumoto, a spokeswoman for Goldman Sachs in Tokyo, declined to comment.
Private REITs own buildings and pay investors dividends from rental income. Private REITs are not traded on exchanges so don’t have daily price fluctuations that listed REITs have. That matches the need of pension funds seeking stable income.
The capitalization rate, a measure of investment yield in properties, has declined to 5.57 percent in the first three months this year from an average of 5.74 percent in the past 12 months, according to Real Capital Analytics Inc., a research and consulting company. A drop in the cap rate, a property’s net income divided by the purchase price, usually signals an increase in property prices.
Japanese pensions have been trying to diversify their investments beyond traditional assets such as bonds and equities to boost returns in a country with the world’s lowest bond yields and two decades of slumping stocks.
Goldman Sachs plans to attract pension funds and institutional investors and targets a 5 percent annual return, the people said. That compares with a compound annual growth rate of 0.2 percent that Japanese pensions, with total assets at $3.47 trillion, had achieved over the past 10 years, according to Towers Watson & Co.
The Nikkei newspaper earlier reported Goldman Sachs’s plan to start investing in Japan’s real estate market.
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